Line of Credit

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Secured Line of Credit Rate

The first concern of a borrower considering a line of credit needs to be getting the lowest interest rate possible.

A borrower needs to try and get the best secured line of credit rate possible because the interest rate determines the cost of the line of credit. The interest rate is used to calculate a percentage of the balance of the line of credit. This percentage is added to the amount of credit used which increases the cost of the credit.

Naturally a high rate of interest will greatly increase the cost of a line of credit while a low interest rate will mean lower costs. Those who shop around and get a lower rate of interest will pay less for a secured line of credit. 

How Secured Lines of Credit Rates Are Calculated

Generally, a lender bases the interest rates that it charges on the risks it take by issuing a line of credit. This is why borrowers with low incomes or bad credit ratings pay higher interest rates they are considered bigger risks.

The other factor is the amount of money the lender can make off the line of credit. If the amounts lent are small the lender will have to charge a higher rate of interest in order to make money by issuing a line of credit.

Secured line of credit rates are often higher because secured lines of credit are often made available to riskier borrowers. Many secured lines of credit are often for much lower amounts of money so lenders have to charge higher rates on them.

Value and Secured Line of Credit Interest Rates

The value of the collateral can also affect secured line of credit rates. Rates maybe lower if a borrower puts up a high value item like jewelry or a car but lower if a low value item is put up.

Some of the highest secured line of credit rates come from hard money lenders. Hard money or cash lenders make lines of credit available that are secured with cash or potential cash. An example of a hard money line of credit is one in which funds in a bank account are used as collateral.

Another example of a hard money line of credit is a payday line of credit in the lender gets the right to use direct deposit to take a portion of the borrower’s pay as collateral. Many hard money lenders require borrowers to give them the right to electronically withdraw funds from their checking account.

Equity and Secured Lines of Credit

Some secured lines of credit use equity as collateral. Equity is a portion of the ownership in a business or a piece of property. An example of this kind of line of credit is a home equity line of credit.

Secured line of credit rates in which equity is involved are often based on the borrower’s credit rating. Those with good or excellent lines of credit will pay a lower interest rate on these lines of credit while those with poor or bad lines of credit will pay a higher rate.